USD/JPY extends recovery further beyond 112.00 handle

The USD/JPY pair reversed majority of its early losses to session low level of 111.35 and is now building on to its momentum back above 112.00 handle.

Currently trading around 112.15-20 band, the pair initially weakened sharply during early Asian session on Monday as renewed uncertainty over OPEC-deal drove investors to the perceived safety of Japanese Yen. Risk-off mood further amplified US Dollar profit-taking slide from post-US election up-surge to the highest level since mid-March touched on Friday. 

As the day progressed, recovery in crude oil prices helped improve investor risk-appetite and assisted the pair to extend its recovery move back above 112.00 handle. In fact, WTI crude oil has now reversed all of its early losses and has now managed to move back above $46.00/barrel mark. 

Investor risk-appetite got an additional boost from the Organization for Economic Co-operation and Development -OECD's upgrade of 2017 global GDP forecast from previous 3.2% to 3.3%. However, the prevalent cautious sentiment around European equity markets restricted further upside and the pair remained in bearish territory for the second straight session.

Going forward, in absence of any major US economic releases the pair would continue to take clues from the broader market risk sentiment and USD price dynamics, which remains underpinned by growing expectations of tighther Fed monetary policy stance even beyond December meeting. 

Technical outlook

Slobodan Drvenica, Information & Analysis Manager at Windsor Brokers Ltd., notes, "Reversing daily RSI and Slow Stochastic support scenario, which requires close below daily Tenkan-sen line for fresh bearish signal. Next support lies at 110.88 (Fibo 23.6% of 101.17/113.88 rally), clear break of which would trigger bearish acceleration towards psychological 110.00 support . Bounce from 111.34 was so far capped by thick hourly cloud that weighs on near-term structure. Alternative scenario requires bounce and close above 113.00 barrier to signal higher low and shift focus towards 113.88 peak."

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